Are Stock Returns Predictable? Rewarding Patient Investors & Powerful Binding Equilibriums

37 Pages Posted: 10 Jan 2020

See all articles by PJ McCloskey

PJ McCloskey

University of London - Birkbeck College

Date Written: September 20, 2019

Abstract

Stock markets worldwide have rewarded patient investors, hence the common advice to ‘buy and hold’. Yet even with a large body of research over a prolonged period, proving this concept remains an onerous exercise for academics. We use Tobin’s Q and the dividend yield to build an equilibrium relationship for the US aggregate stock market using 119 years of data. The resulting VECM model supports practitioners making long-horizon predictions and provides powerful forecasting ability. Our work is directly applicable to UK price controls.

Keywords: stock market, expected returns, TMR, EMR, CAPM, WACC, predictability, valuation ratios, Tobin's Q, VECM, VAR, SVAR

JEL Classification: C32, C53, E44, G10, G14

Suggested Citation

McCloskey, PJ, Are Stock Returns Predictable? Rewarding Patient Investors & Powerful Binding Equilibriums (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3507393 or http://dx.doi.org/10.2139/ssrn.3507393

PJ McCloskey (Contact Author)

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
57
Abstract Views
488
rank
401,777
PlumX Metrics